3.20.2011

AT&T Inc. agreed to buy T-Mobile USA from Deutsche Telekom AG for $39 billion in cash and stock, in a deal that would create the biggest U.S. wireless carrier by subscribers and fundamentally alter the industry's competitive landscape.

Under the deal, the companies said AT&T will pay $25 billion in cash and the balance in stock, giving T-Mobile's German parent an 8% stake in AT&T.

The deal comes as AT&T is looking for growth after losing its exclusive hold on Apple Inc.'s iPhone in the U.S. and as Deutsche Telekom was actively looking at alternatives for T-Mobile. Those options included recent discussions around a possible sale of the business to Sprint Nextel Corp. or an initial public offering.

The deal would combine two operators using the same network technology and, the companies said, would alleviate spectrum shortages cropping up for each.

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The combination of No. 2 AT&T and No. 4 T-Mobile would have nearly 130 million customers, about a third more than current market leader Verizon Wireless, a joint venture of Vodafone Group PLC and Verizon Communications Inc., and more than twice as many as No. 3 Sprint Nextel

AT&T argues that the combination would mean better wireless broadband service in rural areas, an Obama Administration priority, pledging to cover 95% of the U.S. population. The carrier also said most major U.S. markets have five or more competitors.

The Federal Communications Commission, however, warned last May of growing concentration among wireless providers and, for the first time in years, didn't conclude in its annual industry report that the industry is competitive. The agency would have to approve the transfer of T-Mobile's spectrum licenses to AT&T.

Forrester analyst Charles Golvin said the acquisition would bring better coverage to more people, but said that prices likely wouldn't come down as fast with AT&T and Verizon accounting for nearly three out of every four U.S. subscribers.

Comment: My view is that is will pass regulatory scrutiny. T-Mobile is an under-performing carrier. Three carriers will be better than 4 and make AT&T more competitive in the marketplace.

If the loan, which would fund roughly half of AT&T's $39 billion proposed acquisition of T-Mobile USA from Deutsche Telekom AG, is completed with J.P. Morgan as the sole lender, it would represent the largest single-bank loan funding for a takeover deal in history.